Inflation news
- Big moment in cost of living crisis as inflation falls to 2%
- Analysis: What does this mean for interest rates
- How does the UK compare with other countries?
- What is inflation?
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Sunak: Inflation could rise again under Labour
Rishi Sunak says inflation falling to target is "great news" - but warned it could rise again if Labour wins on 4 July.
The prime minister said: "Great news this morning that inflation is back to normal at 2%.
"That's lower than Germany, France and America.
"When I became prime minister, inflation was at 11%.
"But we took bold action. We stuck to a clear plan and that's why the economy has now turned a corner.
"So, let's not put all that progress at risk with Labour. All they would do is spend a load of money, push up inflation and cost every working family £2,000 in higher taxes."
Labour has rejected the Tory claim that it is planning £2,000 of tax rises - and analysts say using the same methodology shows taxes would also rise under the Conservatives.
Prices still rising in almost every sector - but less, in most cases, in May than April
This table shows the annual rate of inflation for various services and goods.
You'll see prices are still rising in almost every sector (though not housing costs ie energy and furniture) - but less, in most cases, in May than April.
As you can see, food and non-alcoholic beverages experienced a heavy drop in the rate of price rises - they were rising 2.9% and now they're rising 1.7%.
The only significant increase in the rate of price rises was in the transport sector - they're rising at a rate 0.4% higher in May.
Clothing and footwear also dropped (by 0.7%) and the communication sector saw a very slight increase (0.1%).
We'll be bringing you the drivers behind today's drop to 2% very shortly.
Opposition parties respond to inflation falling to target
The UK economy is hailing the return of inflation to the 2% target. For the Conservatives this will be proof their economic plan is working. But Labour is warning that, after 14 years of "economic chaos", today's news isn't a reason to choose the Tories when the country goes to the ballot box on 4 July.
Shadow chancellor Rachel Reeves says the Conservatives' "desperate wish list of unfunded spending promises" will mean more expensive mortgages.
Ms Reeves said: "After 14 years of economic chaos under the Conservatives, working people are worse off. Prices have risen in the shops, mortgage bills are higher and taxes are at a 70-year high.
"Labour has a plan to make people better off bringing stability back to our economy, unlocking investment and delivering reform.
"All the Conservatives are offering is a desperate wish list of unfunded spending promises that will mean £4,800 more on people's mortgages."
Liberal Democrats' treasury spokeswoman Sarah Olney agrees with Ms Reeves, calling it "sheer desperation" from the Conservatives to claim their plan for the economy is working.
"The hard truth is that millions of people won't be feeling any better off today, thanks to years of Conservative economic mismanagement," she said.
"Rishi Sunak's boasts will ring hollow to countless families seeing their mortgages skyrocket and agonising rises in shopping prices compared to just a few years ago."
Pound up after UK inflation hits target
The pound rose slightly versus theeuro and dollar on the back of the 7am announcement.
The euro dropped 0.04% to 84.46p againstthe pound from 84.48p right before the data.
Sterling wasup 0.05% against the dollar at $1.2713, having tradedat $1.2704 earlier.
This is all positive for holidaymakers and importers - as their pound will go further.
Analysis: What does this mean for interest rates - and for Sunak?
What does this mean for the chances of a summer interest rate cut?
"It's very, very positive news indeed for anyone hoping for an interest rate cut in the very near future," says business presenter Ian King.
"We won't get one tomorrow, of course, because we're in the midst of a general election campaign."
Instead, a cut from 5.25% to 5% is widely expected in August.
King adds that the news - including core inflation falling in line with forecasts - is "a bit of a fillip" for Prime Minister Rishi Sunak and Chancellor Jeremy Hunt.
Business correspondent Paul Kelso agrees that it is "highly unlikely that the Bank of England will move rates tomorrow".
Markets are pricing in an about 50% chance of a first rate cut to 5% by August - and a 0.5% drop in total this year.
How does the UK compare with other countries?
This morning's figures will be welcome reading for many of us - but how do we compare with other major economies?
The UK is now in line with the US, one of the world economies which has best been able to manage global inflation, and is performing better than much of Europe.
France and Germany sit at 2.6% and 2.8% respectively, with the wider Eurozone between them at 2.7%.
Core inflation at 3.5%
Core inflation strips out volatile elements such as food and energy and is therefore a better measure of inflation.
It had been 3.9% in April - and the drop to 3.5% was in line with forecasts.
This is another positive sign for those hoping for a summer interest rate cut.
Big moment in cost of living crisis as inflation falls to 2%
The rate of inflation dropped to 2% in May - down from 2.3% in April and ending a three-year battle to return price rises to target levels.
It hasn't been this low since July 2021 - and is a big turnaround from highs of 11.1% in October 2022 amid an energy crisis caused by the Ukraine war.
A drop to 2% had been forecast in a poll of economists by Bloomberg.
The target for the headline CPI figure is 2% - set by the Bank of England and central banks across the world.
Economists think the Bank of England will still want more evidence inflation is sustainably under control before cutting interest rates - with a hold at 5.25% widely expected tomorrow before a potential cut in August.
Rates are kept high in order to tame inflation by squeezing the economy.
As well as the headline CPI figure, the Bank will be looking at core inflation - which strips out volatile elements such as energy and food - and wage growth.
Business reporter James Sillars writes: "Bank policymakers have repeatedly voiced worries over indicators showing a pick-up in the pace of price increases during the second half of the year.
"They are concerned too that wage growth, running stubbornly at 6% annually at the moment, risks stoking demand in the economy and therefore inflation further.
"Without these factors falling out of consideration, the majority on the rate-setting committee will likely continue to say it's too early to release the chokehold on inflation.
"There is also a school of thought that the Bank would be reluctant to act during an election campaign."
What is inflation?
Basically, inflation is the rate at which prices are rising.
It directly affects our overall cost of living and, if wages are not increasing at the same pace, the value of your money decreases.
It is impacted by lots of different factors including global conflicts - with the Ukraine war having a huge impact on food and gas prices in recent years. Some argue Brexit also had a negative impact.
In the UK, inflation is measured monthly - comparing how much prices are going up with the same time a year previous.
The headline inflation figure, which you'll see a lot in the news, measures price rises across a range of products that we need in our daily lives.
The most commonly used inflation index is the Consumer Price Index (this is the update at 7am today) - and the target for many Western governments is 2%.
One thing to note is that falling inflation doesn't mean prices are coming down - just that they're rising less quickly. You'd need a minus figure, or negative inflation, to see prices fall overall.
Why does inflation impact interest rates?
The Bank of England raises interest rates to try to slow spending and encourage saving - when this happens prices/inflation tend to come down.
When inflation falls, interest rates tend to.
Potential winners and losers from high inflation
Overall, a high and volatile rate of inflation is widely considered to be damaging for the economy – but there are some people who could benefit from it.
Workers with wage bargaining power (perhaps those who belong to strong trade unions) can come off better as they can protect their incomes by bidding for higher wages.
Producers could end up benefitting if their prices rise quicker than their costs.
People with stocks or property could also see the value of their assets rise if there is a sustained period of price inflation.
However, retired people on fixed incomes are likely to be worse off as inflation cuts the real value of their pensions and other savings.
The poorest members of the population will also feel the pinch more as costs of borrowing, food and domestic utilities are high.
Doctors want drink-drive limit cut | Grocery inflation falls | Business investment in UK 'rock bottom' of G7
Doctors are calling for the drink-drive limit to be reduced to the equivalent of a small glass of wine or beer.
The limit in England, Wales and Northern Ireland is the highest in Europe at 80mg ofalcoholper 100ml of blood. In Scotland it is 50mg.
The British Medical Foundation, the trade union for doctors, has said it will lobby the next government to reduce the limit to 50mg - and 20mg for new and commercial drivers.
Read the full story here...
Grocery inflation has eased for the 16th month in a row, according to industry data released ahead of the general election.
Kantar Worldpanel - which tracks supermarket till prices, sales and market share - said its measure of grocery inflation slowed to 2.1% in the four weeks to 9 June from 2.4% the previous month.
Read the full story here...
The UK had the lowest rates of business investment out of all G7 nations for a third year in a row, a new report has claimed.
The economies of the US, Canada, France, Germany, Italy and Japan are all said to have attracted higher levels of funding from the private sector - as a percentage of gross domestic product (GDP) - in 2022.
The Institute for Public Policy Research (IPPR), which carried out the research, said the ranking was important because investment in things like new factories, equipment and innovations helped boost economic activity, wages and household incomes.
Read the full storyhere...
